FINANCIAL STATEMENT ANALYSIS AND RESEARCH

CASH FLOW STATEMENT ANALYSIS FOR GRASIM INDUSTRIES LTD.

Submitted to: Dr. Pawan Jain

SAURABH SINGHAL 2012282 SEC- DEF

Grasim Industries_CF.xlsx

CASH FLOW STATEMENT ANALYSIS:

STEP 1: Scanning the Big Picture Grasim Industries Limited, a flagship company of the Aditya Birla Group, ranks amongst India's largest private sector companies, with a consolidated net revenue of Rs.279 billion and consolidated net profit of Rs.27 billion (FY 2013). Grasim started as a textile manufacturer in 1948. Today its core businesses are Viscose Staple Fibre (VSF) and Cement, contributing over 90 per cent of its revenues and operating profits. It is also present in Chemicals which is essentially a backward integration of VSF. As we can observe from the cash flow statement of the last 5 years, the Net Income has been continuously declining in numbers and has almost drooped by 50% from 2008. We can also notice that there is a continuous decrease in the Depreciation value. Also the financial expenses have gone down over the last 4 years which is because of lower borrowings and higher pay off to the lenders.

STEP 2: Checking the Power of the Cash Flow Engine Grasim Industries Limited is in healthy growing stage as we can observe from the cash flow statement that:

Net cash from Operating Activities is positive throughout the years and is also able to take care of the investing and financing activities of the company. Although operating cash flow is decreasing over the last five years but that may be because of increase in inventory as well as increase in trade payables which is a good sign for a growing company. The investing activity towards fixed assets has been consistently higher than the depreciation value which is another sign for expanding company also they are well able to keep the company whole.

Overall it has a powerful cash engine which can take well care of the financing as well as investing activities of the company. Also the expanding working capital also indicates positive growth of the company.

STEP 3: Pinpointing the Good News and the Bad News The company has been investing steadily in the fixed assets in proportion of the operating cash flow year on year. Also, Grasim industries makes significant investments in acquisitions which is another growth indicator for the company. Grasim industries have consistently borrowed less than it has paid back. As, we have seen there is plenty of cash generated from operating activities so it is a wise decision to reduce debt to improve leverage. The company is also not issuing much of stocks which also indicates the positive attitude towards the profitability.

STEP 4: Putting the Puzzle Together The only thing of concern here is the declining Net Profits of the company besides which the company is finically doing pretty well on balancing its financing and investing activities out of cash generated from operations. Other thing to notice is that in year 2012-13 company has disinvested from financial assets and utilised the proceeds in fixed assets.

Overall company is in growing phase and is managing its finances pretty well. They have to watch out for the falling net income which is due to the falling demand/sales. I think company need to spend more on advertisements to be able to generate more demand in the market and thereby increasing profitability. Rest the company is managing its funds to the best possible level with all ratios with in allowable limits. Company is also making investments continuously to expand itself gradually which is a positive sign for a company in growth stage.